One-month increase shown with trade deficit widening

Wall Street started going crazy after a trade deficit increase was shown Wednesday by the Commerce Department for the month of June. After narrowing in recent months, the U.S. trade deficit unexpectedly widened in June by a record $ 7.9 billion. Stocks quickly went down. Last quarter the trade deficit had slowed more than analysts thought. The recession could go into a double-dip with the trade deficit so unstable.

Trade deficit because of the dollar

The Commerce Department said the trade deficit ballooned much more than analysts expected in June, after the stronger dollar made it easier for people in the U.S. to purchase cheaper exports, particularly from China. The gap widened to $ 49.9 billion, up from a revised $ 42.0 billion in May. It was expected that the gap would get smaller because oil prices have been going down, reports the Washington Post. In May imports were at $ 194.4 billion. They then rose to $ 200.3 billion in June when more consumer products, auto parts and other things were being bought out of the country. Exports fell to $ 150.5 billion from $ 152.4 billion. U.S. companies struggled to sell products such as industrial supplies, food and consumer goods to foreign customers.

Trade deficit isn’t really as forecasted

73 economists forecasted in a Bloomberg News Survey that $ 42.1 billion was going to be the trade deficit. The decline ended up being $ 42.3 billion instead which was a 19 percent decrease. Bloomberg reports the June trade deficit adjusted for inflation, which is the figure used to calculate gross domestic product, increased to $ 54.1 billion, the highest since February 2008 during the worst of the financial crisis. The disappointing numbers prompted some economists to lower estimates for second-quarter growth to around 1 percent to 1.5 percent.

U.S. unemployment issues more of a problem}

Economists don’t agree on whether the trade deficit in June’s sudden and marked increase means the U.S. is in danger of heading into a double-dip recession. According to the Christian Science Monitor, the trade deficit is not as much of a problem as U.S. unemployment rates. Trade deficits coexisted with domestic job growth for years prior to the recession. The more significant issue is reviving domestic consumer demand and business investment.

Could unemployment be happening because of the deficit

If global commerce is hurt as the U.S. fixes the trade deficit problem, economists are concerned that economic recovery might just take longer, reports the Monitor article. Other economists think the trade deficit problem has got to be worked on. Peter Morici, University of Maryland economist, explained that unemployment is about 10 percent in the U.S. when China accounts for almost all of the trade deficit with the oil and consumer goods bought from them.

Additional reading

Washington Post

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